FUTURE CONNECTIVITY CHINESE ONE BELT, ONE ROAD: PROSPECTS AND IMPLICATIONS TO NEPAL - MUNICH PERSONAL REPEC ARCHIVE - MUNICH PERSONAL REPEC ...
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Munich Personal RePEc Archive Future Connectivity Chinese One Belt, One Road: Prospects and Implications to Nepal Bista, Raghu 2 November 2019 Online at https://mpra.ub.uni-muenchen.de/100068/ MPRA Paper No. 100068, posted 04 May 2020 11:26 UTC
Future Connectivity- Chinese One Belt, One Road:
Prospects and Implications to Nepal
Raghu Bir Bista1, PhD
Senior Lecturer, Department of Economics, PMC2
Tribhuvan University3, Nepal
Abstract
One Belt, One Road (OBOR) that is a Belt and Road Initiative (BRI) is a connectivity approach of China with
the objectives of integrating 68 countries of the world by road and maritime for new connectivity, new trade
flow and new world order for Asia Pacific and Europe. At initial level, Nepal was not a part of OBOR. In recent
years, Nepal is a part of BRI. In this context, BRI is a key concern of Nepalese economy, trade and investment
in the constraint of the geopolitical blocked for better connectivity beyond Neighbor Countries, India and
China. This paper has a curiosity whether BRI will have better connectivity for great trade prospects and its
positive implication to Nepal. This paper examines this research question with the secondary data base of
foreign trade by employing Econometric Model based on Gravity Model and descriptive statistics. Based on
the assumptions, BRI is a good opportunity for better connectivity, better regional integration and
accessibility, better and fast transportation with minimum value addition and tremendous market access and
size. As result, it is an opportunity for export trade if Nepal has exportable items but there is a pressure of
import trade. In tourism, it will have positive implications with 441.8 million Rs income from 0.6 million
Chinese tourist arrivals, along with investment and technology transfer, despites dept trap risk. Therefore,
OBOR may be a better prospect.
Key Words: OBOR, BRI, Trade, Tourism, Investment, China, Nepal etc.
1. Context
Trade is a most powerful driver to change “miracle” in the economy (Bista, 2005 and Bista, 2016).
Its example is Chinese Economy, which has galloping jump to $8.227 billion (2012) from $150
billion (1978) with 10 percent growth rate. In 2017, it reached 12.24 trillion USD with 18.54
percent export–GDP ratio (WB, 2018). Thus, China has adopted export intensive trade growth
aggression policy to expand Production Possibility Curve of her economy outward more and more
through One Belt, One Road (OBOR) connectivity initiative.
1 Raghu Bir Bista is a Senior Lecturer of Economics Department, Tribhuvan University. He joined as research associate working in
contract in 1999. He teaches policy economics, public economics and macroeconomics. He did Masters of Philosophy(MPhil) in
Economics from Jadavpur University, India in 2010 and his research title was Global Role of Nepalese Forest: A case of Reduction
Emission from Deforestation and Degradation(REDD) published by Lambert publication in Germany in 2011. He was a SANDEE fellow at
that time. He did PhD in 2017 on Economics of Climate Change Vulnerability and Household Adapatation in Sotkhola Water Basin in
Surkhet, Nepal. He was University Grant Commission Fellow. (see his webpage: www.linkedin.com/dr-raghu-bir-bista ;
www.researchgate.net/Raghu Bir Bista; ; www.facebook.com/raghu.b.bista
2 Patan Multiple Campus is one of constituent campus of Tribhuvan University established in 1954 AD. It offers 15 courses including
Master and Bachelor programs. It locates in the heart of Lalitpur, Kathmandu Nepal spreading 27,296 square m. area.( see its details in
websites: https://edusanjal.com/college/patan-multiple-campus/)
3 Tribhuvan University is a public university established by the Government of Nepal in 1959 A.D with an objective of higher education promotion
and production of highly qualified human resources. The university is the oldest university in Nepal and the tenth largest in the world in terms of
enrollment. Till 2018, it has 60 constituent campuses and 1084 affiliated colleges across the country (see its details in websites: tribhuvan-
university.edu.np).
1Table 1: OBOR countries and regions
Regions 64 countries
Starting China
8 countries in South Asia Pakistan, Bangladesh, Sri Lanka, Afghan, Nepal, Maldives, Bhutan
11 countries in Southeast Asia Mongolia, Russia, Indonesia, Thailand, Malaysia, Vietnam, Singapore, Philippines, Myanmar,
Cambodia, Laos, Brunei, East Timor
5 Central Asia Countries Kazakhstan, Uzbekistan, Turkmenistan, Kyrgyzstan, Tajikistan
16 Countries and eastern European Poland, Rumania, Czech Republic, Slovakia, Bulgaria, Hungary, Latvia, Lithuania, Slovenia, Estonia,
countries Croatia, Albania, Serbia, Macedonia, Bosnia and Herzegovina
Six States of the CIS Ukraine, Azerbaijan, Armenia, Belarus, Georgia, Moldova
Other Countries Mongolia, Russia
Source: World Bank, 2018
One Belt One Road (OBOR) is a modified version of the Belt and Road Initiative (BRI). It is called
the Silk Road Economic Belt and the 21st century Maritime Silk Road. This is a road and maritime
connectivity through which China make a future economic corridor of 68 countries population and
40 percent of Global GDP for trade, investment and market(see its details in Table 1). Let us
imagine its unimaginable market size, trade volume, hugeness of investment and harness of the
unexploited resources. Whatever prospects, such connectivity is a pull factor of economic affair
and flow towards China for Chinese Dominance and Role in the world’s affairs. In 2013, Chinese
President Xi Jinping initiated this approach for innovative integration for economic corridor. Its
initial focus is on mega infrastructure investment of 900 billion USD per year on road, rail, energy,
internet and port from China to Asia and to Europe for next decade. Its financing modality is debt
instrument. Thus, OBOR addresses connectivity and infrastructure gap and accelerate economic
growth, economic flow, and resources mobility across Asia Pacific, Central, and Eastern Europe.
Thus, it is a China big push belt isolating the established economic and political power leader: USA,
UK, France, Japan etc.
OBOR is a new innovative idea in which China has ambitious and hidden economic goals such as
developing land and maritime link to Asia Pacific and Europe, enlarging international and regional
market and their demand for Chinese made products and services, reducing transportation cost
on value chain of trade, ensuring energy and resources availability and security and increasing
regional growth. Thus, OBOR creates new routes of shipping and road for new trade flows.
OBOR initiatives started in 2013. Then after, there are the initiatives in the world as follows:
Bangladesh-China-India-Myanmar Economic Corridor (2014), China-Pakistan Economic corridor
(2014), the New Eursaian Land Bridge (Western China to Western Russia), China-Mongilia-Russia
corridor, China-Central Asia-West Asia Corridor, China-Indochina Peninsula Corridor, China
Britain Route, East Coast Rail Link, Kumming Singapore Railway, Northern Sea Route(Ice Silk
Road), Doraleh Multipurpose Port, Magampura Mahinda Rajapaksa Port, Super Grid –China, north-
east Asia, southeast Asia, South Asia, Central Asia and West Asia.
2.Objectives and scope of the study
Objective of this paper is to identify the possible impacts of better connectivity and infrastructure
under OBOR initiatives in Nepalese economy. Its specific objectives are to conceptualize OBOR and
its initiatives in Nepal possible impacts on trade and tourism Industry through its opportunities
and challenges.
To achieve above objectives, we employ explorative and descriptive research design under which
qualitative and quantitative analytical tools are used. We use Gravity Trade Model for China Nepal
Trade Impact and Time Series Analysis for predicting the potential tourist arrivals and inflow.
Similarly, we undertake case analysis. Its data sources are secondary including Economic Survey,
2Central Bureaus of Statistics (CBS) and the World Bank. This paper covers only road and rail
network connectivity between China and Nepal. It is still ongoing preparation process. Therefore,
the scope of the paper is quiet narrow.
3. OBOR and Nepal
Nepal has a thirsty of higher economic growth to transfer economic and social transform and to
reach out the poorest of the poor for Happy Nepali, Prospective Nepal. By 2030, Nepal desire the
17 SDGs achievements and promote developing countries with mid income country in the world
ranking (NPC, 2014). For such goal, Nepal has planned to build doing business environment,
better connectivity and infrastructure development through 14 Special Economic Zones(SEZ) all
over the country(at least two in each province) and constructing at least double Len black toppled
road networking including North-South road and rail network. Therefore, the government of
Nepal has adopted Look China Policy as an alternative source of opportunity for it.
OBOR is a contextual relevant approach to Nepal for better connectivity and infrastructure
development for trade and transit alternative to Indo Nepal road connectivity because of Indian
trade and transit control and command, bad experience of Indian locked strikes in 1990 and 2015,
higher cost of poor connectivity in trade and no barrier free trade, investment and cooperation. It
was next step outward of bilateral agreement of China Nepal trade and transit.
However, the government was fully undecided what to do about OBOR initiatives because of a
traditional geo political complexity and Indian factor. In this context, Nepal committed OBOR
initiative in 2014 and signed in 2017 due to Chinese aggressive diplomatic initiation. Its goals are
to connect governments, infrastructure and people and to build Nepal as South Asian gateway to
China.
Nepal has initiated OBOR initiatives in road and rail connectivity within next five years as follows:
Road Connectivity (China and Nepal)(620 billion)
– Koshi Corridor ( Rani-Biratnagar-Itahari-Dhankuta-Leguwaghat-Khadbari-Kimathanka) (310 km)
– Belhiya-Bhairawa- Palpa-Ramdi-Kaligandaki-Rudrabeni-Maldhunga-Beni-Jomsom-Beni-Korala(202
km)
– Thori-Bhandara-Malekhu-Galchi-Trishuli-Betrawati-Safrubeshi-Rasuwagadhi(188km)
– Bhittamod-Dhalkebar-Sindhuli-Manthali-Dolkha-Singati-Lamabgar-Lapcha(310 km)
– Birganj- Hetuda-Narayanghat-Mugling-Kathmandu-Dhulikhel-Dolalghat-Baharbise-Kodari(390 km)
– Jamunaha-Nepalgunj-Bangesimal-Khulul-Lamphu-Simikot-Hilsa(521km)
– Kechana-Charali-Ilam-Fihidim-Taplejung-Olangchudola-Dharila (359km)
– Others: Saljhani-Sandhikharka-Dhorpatan-Badehar(195km)
– Lumbini-Bhairwa-Tribeni-Dumkibas-Gadakot-Ramdi-Ridi-Tamghas-Sandhikharka-Gorusinghe-
Tolihawa-Lumbini(500 km)
– Railway (180 billion)
– Mechi Mahakali Electrical Railway(945km)
– Rasuwa-Kathmandu-Pokhara-Lumbini Electric Railway(519km)
– Jayanagar-Janakpur-Bardibas(69km)
– Katahari-Biratnagar-Bathanha(13km)
– Pharping-Budhanilkantha-Thankot-Dhulikhel-Chakrapath
Source: Economic Survey, 2018
Above OBOR initiatives construction and development will give better connectivity, better
infrastructure alternatives and better trade, investment and tourism, if Nepal can complete above
3OBOR initiatives on time. When we see its proposed budget, its estimate is approximately 7
trillion budgets on road and railway connectivity to three transit points in northern border with
China.
4.OBOR opportunities to Nepal
Connectivity and better infrastructure reducing the cost and time of transport to expand
trade
Nepal has badly experienced unconvincing higher value addition of Transport cost and time in
foreign trade (export and import) and its barrier to trade flow, speed and size and to competitive
option for a long (Bista, 2005, Bista 2016 & Bista 2017). Samuelson (1954) mentions transport
cost and time in trade and non-trade commodities. Trade literatures explain its value respective to
geographical barriers, road connectivity and shipment carriers, along with socio political barriers.
This exogenous variable is heterogeneous character respect to heterogeneous geography, road
and shipment carriers.
Empirical study of Hummels(1950s) argue better infrastructure reducing transport cost. Similarly,
Glaeser and Kohlhase(2004) and Redding and Turner(2015) mention rail network minimizing the
price per ton of commodities. It is supplemented by quality of infrastructure. Therefore,
connectivity and better infrastructure reduces the cost and time of transport to expand trade.
OBOR initiatives include four Len road network Kathamndu-Kerung-Shegatshe-Lhasha and Rail
network Kathamandu-Pokhara-Lumibini- Kerung-Shegatshe-Lhasha, along with North-South road
network projects. Besides, there are four ports: Zhanjling(2755KM), Shenshen(3064KM),
Lianyungang(3379KM) and Tianjm(3276KM) for trade and transit facilitation. Future is uncertain
but it will be certain if the political willpower and strong commitment occur. We hope that the
project will be a milestone to build a better connectivity and quality infrastructure.
With respect to Kolkota(774KM) and Vishakhapanam (1194KM), all Chinese ports are far from
Nepal. Its transport cost and time will be more than the existing Indian ports. If China Nepal
connectivity is better and Chinese government reduce transport cost and time to Nepalese import
and export, it will substantially reduce transport cost and time. It facilitates trade flow led trade
expansion of Nepal, FDI inflow and then domestic industrial development (Bista, 2005, Bista 2008,
Bista 2011 & Bista 2016). Baier and Bergstrand (2001) explain 8 percent transport cost reduction.
Nordas and Piermartinie (2004) and Shepherd et al. (2011) find the multimodal transport system
contributes trade expansion with 2-5 percent. Its quantification is quiet relevant further.
Efficient Transport drives industrialization and agricultural development
Nepal desires industrialization led agriculture and service sector development for rapid higher
economic growth and welfare of the poor people. However, it is just interesting myth, which has
been for 7 decades long development plan is just never ever real. However, Nepal has not left it in
national development plan and annual budgetary policy. OBOR initiatives has again made hopeful.
Either international or national firms or industry concern mainly cost and profit. In Nepal, the
operational cost is unexpectedly higher due to poor infrastructure, political movements, insecurity
and uncertainty led security and stock measures (ware housing), additional unnecessary
employment for security and insurance cost. Domestic firms have competitive issues in market
and less than normal profits. Therefore, FDI firms have also such issues to distract them to invest
4in Nepal. Only special cases, FDI firms have invested with the expectation of super normal profit
and then the possibility of adjustment. Otherwise, they are demotivated to invest in Nepal.
Literatures on infrastructure and industrialization argue strongly that better infrastructure
reduces mainly operational cost by reducing insecurity and uncertainty issues related cost and
firm inventories. Either export or import trade of Nepal needs long time to reach out its own
destination because of clearance and road time. OBOR initiatives road and rail network will
facilitate mass transportation of commodities and limits 38 days long. Thus, firms will have an
opportunity to reduce cost and to improve product competitiveness in domestic and international
market. It will facilitate the existing manufacturing industries as well as the new manufacturing
industries. Thus, infrastructure development may lead industrialization and then agriculture and
service sector development as propelled to higher economic growth rate, high rate of employment
and welfare of the poor people.
Real sense of regional economic integration
Economic integration is today’s need for collective efforts to expand free trade area (FTA) for
industrialization, more FDI and large volume Trade for increasing regional and international GDP
share and higher economic growth rate. Studies show a better connectivity to integrate
economically the region. Its evidences are NAFTA and ASEAN. In South Asia, it is only myth.
Therefore, OBOR initiatives may be relevant to Nepal’s economic integration opportunities.
OBOR initiatives: road and rail network gives an opportunity to connect with the main land of
China and then all South Asian countries, ASEAN countries, Europe, Middle East and Africa. This
regional integration directly and indirectly provides a great opportunity to Nepal to reach out
large and small markets of all these countries for export promotion, investment and resources.
Thus, nearly zero trade barriers will promote Nepalese commodity inflow and outflow with more
opportunities and more options for promoting trade liberalization, comparative advantage, and
specialization of commodity production, technology and FDI.
Tremendous trade size and market scope
OBOR initiatives make connectivity to 68 countries having 30 trillion USD (40 percent) of Global
GDP (75 trillion USD, 2017), trade and two third of total world population. It shows unaccountably
tremendous trade prospects and scope as well as market integration to all OBOR countries, like
Nepal. If OBOR initiatives are successful, all member countries and their two third populations
will get tremendous trade and market prospects to promote higher export growth led rapid higher
economic growth rate and welfare and to harness unexploited potentials of human and natural
resources. Nepal is the second richest country for water resources. Its estimated potential is
approximately 83000 MW and immense potentials of irrigation and clean drinking water, along
with mineral resources, natural beauty of Himalayan series and human resources. Until date, its
actual utilization is only 1000 MW (1.2 percent of total hydro potentials), which is not yet
sufficient to meet household and industrial demands leads to the import of hydro electricity from
India. Despite a present load shedding free situation, it does not assure energy security and have
its spillover effects on the welfare of the people and higher GDP growth. In addition, about 28
percent population is below the poverty line (1.90 USD per day earning). About 32 percent-
unemployed, population has made complicated to the poverty reduction initiation. Since Indo
Nepal trade is 1:14 export-import ratio and China-Nepal trade is 1:44 export import ratio,
unexpectedly expanding negative Balance of Payment (BOP) of Nepal has become as invisible and
visible threat to macro-economic stability and economic growth and as undesired poor
5performance of industrial, service and agriculture sector’s total factor productivity. Studies have
identified landlocked as barriers to reach out unlimited trade opportunities and immense raw
material and energy resources to responses above development issues. Therefore, OBOR initiated
connectivity and infrastructure changes Nepal as a gateway of south Asia through which it reduces
landlocked barriers and provides alternative connectivity to Indian trade and transit.
Large unexploited potential and improving welfare of the people
The 14th National plan and its past plans have identified a long listed potentials, specifically water,
mineral, natural beauty and human resources. Shrestha (1991), Bista (2017), and MoF (2018)
explain 83000 MW hydro potentials of 6000 river rivulets, along with immense potentials of clean
drinking water and irrigation water. About 42000 MW is economically viable. Its present status is
only 2 percent. About 98 percent water resources are unexploited. Similarly, CBS (2018) shows
0.5 million-labor force per annum in labor market. About 68 percent have employment but about
32 percent remains unemployed. Therefore, either skill or unskilled labor is potential resources
but unexploited.
Another reliable potential resource is natural beauty of ecology, landscapes and Himalayan series
for tourism promotion and development. However, still there is an immense scope to build
divergent tourism activities from recreation to adventurous, create wider and international
standard hospitality infrastructure and business and to attract a large number of tourists.
Similarly, the geological scientific exploration has identified unlimited mineral resources in Nepal,
where limestone is exploited but not fully. Therefore, this resource can be considered into
untapped resources. Therefore, OBOR initiatives will be a big hope to exploit fully above these
resources through economic integration.
5.Its Economic Implications
Hope in Export Promotion
Nepal sees trade as a growth engine for rapid, sustainable and long-term development. Therefore,
Nepal has been adopting open and market-oriented trade policy for three decades long (MoTC,
2009 & Bista, 2009). Its major objective is to remove trade barriers and to access international
market, Capital and FDI. Its examples are the entry to WTO, SAFTA, BIMSTEC and the initiation of
Special Economic Zones (SEZs). Thus, Nepal desires to promote export trade all over the world for
export intensive industrialization and agriculture development for massive employment and
economic growth.
In liberal trade, the import trade dominates to the export trade in Indo Nepal and China Nepal
trade with 1: 14 and 1:44 export and import ratio respectively. Therefore, Nepal has been
suffering from tremendous trade deficit with respect to trade growth. It is approximately 13
trillion in 2017. It results negative balance of payment in both trade. In this context, OBOR
initiatives will be export friendly to Nepal.
OBOR initiatives are still on going. At present, road expansion and construction from Kathmandu
to Kerung is going on. The feasibility study of Rail network is in the completion and China has
expanded rail network from Lhasha to Sighatse to Kerung. In this context, we have curiosity about
the potential impact of better connectivity and infrastructure. Based on time series data base of
6China and Nepal trade, Gravity model of trade is used to capture and estimate its impact and then
forecasting its future potential trend. Its result is presented in table and figure.
Table 2: Result of Gravity Model of Trade
The result of the model (Table 2) shows Explanatory Variable Log Export Log Import
Constant -2.70(4.78)* 3.36(4.31)**
OBOR has positive impact in export and Log GDP China 0.62(3.16)* 0.13(3.45)*
import trade. OBOR promotes import more Log GDP Nepal 0.80(1.08)** -0.28(0.96)*
than export trade with 10 percent difference. Log Per capita of China -0.71(3.62)* 1.10(3.70)*
Liberalization policy of Nepal is not benefit to Log Per capita of Nepal 0.32(1.91)* -1.17(1.70)*
D (Distance) 0.16(0.19)** -0.09(0.21)*
export more than import trade. It has helped D1(Liberalization) 0.06(0.39)* 0.96(0.43)**
to the growth of import trade because Nepal D2(OBOR) 0.51(3.62)** 0.61(0.32)*
just export low value and unprocessed agro Observations 25 25
and forest products to China, instead of the No of Countries 2 2
Overall R2 0.81 0.90
processed and high value commodity.
However, connectivity and infrastructure Note: * is 10 percent and ** 5 percent of P value.
have disturbed more to the import trade than Figure 1: Forecasting of Trade Volume, Import and Export
export trade because of volume difference.
Export trade has benefitted to both economies and the per capita income of Nepalese. In import
trade, it is negative to the economy and per capita income of Nepalese but favor to Chinese
economy and per capita income of Chinese. In case of the loss of per capita income of Nepalese,
the imported items from China are consumption intensive than capital intensive having negative
impacts on local and national commodities and employment because of their cheap and
substitutable characters. Therefore, OBOR
initiatives would be favorable to the export
trade of Nepal.
What about the next in future in China
Nepal Trade after OBOR is forecasted by
employing time series model for next 50
years from 2019 to 2050(Figure 1). It will
get a positive trend. In case of export trade,
Nepal has to internalize its stakeholder
negative externalities to improve total
factor productivity and scale of production
based on comparative advantage.
Tourist Arrival Inflow Benefit
In 2018, the population of China is of 1.38 billion out of which 145 million Chinese residents
travelled more than 100 destinations of the world by 134 million trips contributing 2611 million
USD in the world’s tourism revenue in 2018. Its growth rate is estimated more than 1000 percent.
Let us imagine its potentials.
Since 2003, Chinese tourists have preferred this neighbor country Nepal as destination of
religious, business, conference and recreation. Over 15 years period, about 0.1 million population
7have made their destinations (Figure 2). With a better connectivity and infrastructure
development, its growth rate will be unexpectedly immense after OBOR initiatives. Its forecasting
estimates 0.6 million tourist with 441.8 million USD worth revenue generation after OBOR
initiatives in connectivity and infrastructure development, if Chinese tourist spend 54 USD per day
staying for 13 days long in Nepal(Table 3). It would be not more than a miracle driver to
backward and forward linkage development towards higher economic growth rate, massive
employment opportunities, factors productivity and welfare of the people.
Figure 2: Forecasting of Chinese Tourist inflow
Chinese Tourist Inflow
1400000
Series1, 1144383
1200000
1000000
Actual Tourist Estimated Tourist
800000
Tourist No
600000
400000
200000
0
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
2027
2029
2031
2033
2035
-200000
Table 3: Summary of Chinese Tourist
Forecasting Variables Mean
Per Day Spending of Chinese Tourist($) 54
Spending Days of Chinese Tourist 13
Tourist Arrival (No) per year 603173
Expected Revenue per year US$ 441846242
FDI and Technological Transfer
OBOR initiatives have 35 projects out of which there is not only infrastructure and connectivity
related but also manufacturing, hydro and service industries. Its size of investment is
approximately 2.4 billion USD. It indicates OBOR initiatives pulling Chinese big investment in
different sectors as well as creating doing business environment to MNC of the world looking and
waiting to Invest in Nepal. Therefore, its positive impact falls on FDI and technological Transfer.
(Please find its details in next session)
6. Challenges and Risk
Macro Risks
8China has been initiated OBOR simultaneously and aggressively in 68 countries of Asia, Europe
and Africa to build big infrastructure projects for future connectivity and infrastructure. Its finance
source is huge Chinese soft debt for this long-term project at unsustainable way. Its examples are
Kunming-Singapore Railway of Lao DPR section and Hambantota Port of Sri Lanka.
Case I: Lao DPR
• In Lao DPR, the Kunming –Singapore Railway is an important connectivity under OBOR
initiation and success. Its estimated cost is US$6 billion (40% of GDP of Laos of 2016). The
government of Lao has limited its participation around US$0.7 billion, out of which its 71
percent finance is under Chinese soft debt to the government of Lao DPR (World Bank,
2018). Thus, Lao DPR has felt in the huge debt trap.
Case II: Sri Lanka
• Sri Lanka welcomed OBOR initiative of China for better connectivity and infrastructure for
export promotion and FDI. Therefore, In 2009, Sri Lanka signed a 1.1 billion USD deal to
sell a 70 percent stake of the strategic Hambantota port to China, amid concerns over the
massive debt the island nation incurred in building the port (The Hindu, Sri Lanka, China
sign $1.1 billion Hambantota port deal, July 29, 2017). Interestingly, Sri Lanka felt in
commercial loan trap. Therefore, The government handed over the control of the southern
sea port of Hambantota to China on a 99 year lease against the soft loan ( the New Indian
Express, Sri Lanka part of China’s One Belt, One Road Initiative, 02 August 2018 India).
Above case provides a strong evidence of macro debt trap’s risks to Lao DPR and Sri Lanka instead
of better connectivity, infrastructure, also Chinese FDI, and big market. Therefore, the mega
infrastructure project and its Chinese debt initiative module will be looking attractive and
motivational to member countries, like Nepal but there will have a macro risk of debt trap to
Nepal too.
Weak Capacity of Institution and its mechanism
Let us remember the last budget of 12.65 trillion out of which capital budget is 25 percent (i.e. 3
trillion) followed by 50 percent (6 trillion) regular expenditure and 25 percent (3 trillion)
financial management. Naturally, the government cannot allocate 100 percent capital budget on
OBOR but should allocate 50 percent capital budget at the cost of other development activity.
Otherwise, Nepal could not meet five years OBOR completion. It is possible when Capital Budget
should be enlarged. In declining bilateral and multilateral foreign aid, Nepal should depend on soft
debt to finance such level of investment. Thus, OBOR may lead “debt trap” to Nepal.
Nepal has so called a strong, efficient and effective bureaucracy. When we see 22 percent, size of
capital expenditure over six months, the bureaucracy has leakage: corruption and bribery. The
bureaucracy has not a capacity to mobilize such resources within a project time.
In addition, Nepal is murmuring lovely to sing a political song and to make a god to political
leaders instead of escalating development first approach and grooming development leadership.
Therefore, power imbalance and brokering are main business of the country. Its negative
margarine has fallen all economic institutions, agency and activity. Therefore, debt may be
easygoing approach without thinking its debt trap and consequences.
Risk in Export promotion
9Nepal has identified about 198 exportable items: agro based and handicrafts to export China (See
its list below). Its ratio with import is 1:44, despite a huge potential market of 1.38 billion Chinese
populations. OBOR initiatives will make a better connectivity and infrastructure directly to
Chinese Market, along with adjusting all custom and technical barriers. Certainly, export volume,
flow and diversity of Nepalese commodities will accelerate optimally.
Table 4: List of Exportable Items
Vegetables Packing related plastics Mattresses of Rubber or Plastics
Rosin and Resin Acids Iron and Steel Products Sacks and Bags of Jute or other textile fibers
Tea Rags, Twine and Rope Oil Cake
Herbs and Essentials Oils Ghee Carpets
Lentils Brans Ornamental Ceramic Articles
Ginger Aluminum Wires
Buckwheat (millet and related String Musical Instruments
seeds)
However, over three decades, Nepal has not added high value and competitive commodity in above
list and 198 commodities. We have today whatever we had. When we talk about its volume
potentiality, we have not regular mass scale productive capacity: skills, capital, raw materials and
environment because of disturbing backward linkage and supply chain issues. Zero custom duties
are not properly utilized. If we talk about exportable items of China, we can infinite looked like list
and its high scale exportable quantity because of high scale total factor productivity and
production capacity, available high and semi-skilled human capital and large scale market demand
led innovative business and production ideas exploration and research. In all these sides, Nepal
has not initiated even to domestic markets with respect to international markets. Therefore,
export promotion will be unexpectedly constant in future, despite its immense potentials.
Therefore, OBOR may be negative BOP induced instable macroeconomic stability risk game to
Nepal because of resist and passive factors of production, innovative thinking, research,
institution, resource allocation and policy measures.
Risks involved with major infrastructure projects
Nepal is quiet sensitive to multi hazards risk in which Nepal is at 11 th ranking in the world and 4th
ranking in the climate change because of its divergent altitudes and landscapes. In Hilly reason,
Geologist explains the weak masses to large and small hills and cracks due to the earthquake.
Annually, multi hazards have created to fragile and vulnerability to households. Therefore, Nepal
is environmentally concern country, where weak governance and higher corruption have made
critical to these issues. In this context, above 35 OBOR projects in Nepal are almost all mega
projects related to road and rail network, along with hydro projects. During the construction,
Chinese company will use tunnel technology and mega machines to construct road, rail and hydro
projects. First it encounters seriously and substantially geology and bio diversity to complete
within the dead line. There may encounter landscape structures and composition towards more
vulnerable and fragile. Its consequences may be disasters. Secondly, these projects may destroy
natural habitats and its related ecosystems and biodiversity to the wildlife. There will be danger
10to birds and animals. Thus, natural beauty of Nepal may be in danger and the people will lose their
natural livelihoods. Thirdly, mega projects have a huge finance. Due to corruptive character and
behavior of the politician and bureaucratic machines, the corruption will be substantial. Its cost
will be higher in these project’s negative impacts.
Strategic Dragon’s “hidden”
OBOR initiatives are a look like a beautiful connectivity and infrastructure development stuff to
drive the member countries towards industrialization and higher economic growth. Its hidden
agenda is to create China as economic as well as military power and its presence in the global
power balance.
In South Asia, Chinese interest is to engage Nepal not only to balance Indian and Western Interest
but also to push back from Nepal because Chinese understand Nepal’s vulnerability and fragility
having safe and easy situation to the Western Allies to sow conspiracy seeds against China and
then India and Nepal through religious activities as well as intelligence activities. How much it is
beneficial to Nepal is sensitive concern to Nepal but it is also strategic trap between China and the
Western Allies. It will endanger Nepal’s independence, freedom, existence and sovereign.
7. Conclusion
OBOR initiatives, despite economic and strategic Chinese interest and invisible and visible
challenges and risks are an opportunity to Nepal and Nepalese interest particularly on trade,
investment and market for rapid economic growth and welfare of the country. Therefore, the
government should improve its institutional and policy capacity to optimize this opportunity
through innovative and research on market dimension and dynamics for deciding what to produce,
how to produce, how much to produce and for whom to produce for industrial and agriculture
expansion and export intensive growth.
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Newsletters
The Hindu, Sri Lanka, China sign $1.1 billion Hambantota port deal, July 29, 2017
The New Indian Express, Sri Lanka part of China’s One Belt, One Road Initiative, 02 August 2018 India
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